I have had some interesting discussions in recent weeks with various GBS organisations on their “Why?”.
What is the “Why” of GBS?
From an external perspective, what is the “Purpose” of GBS?
Why should executive leadership or investors care?
The seminal work “Shared Services in Finance and Accounting” was published 21 years ago, and to my knowledge was the first ever book on the subject. The author was Tom Bangemann (I know, he looks too young 😉) who wrote about the promised value of Shared Services, and later GBS. He suggested that this new model could operate transactional finance activities that deliver value in a number of different ways with;
- Lower costs
- Higher quality
- Lower risk
- Standardized processes
- Quicker decision making
- Improved customer service
- Economies of scale
- Improved controls
The Hackett Group (of whom Tom is an alumnus) defined the primary purpose of a Global Business Services (GBS) “to centralize, standardize, and optimize back-office and middle-office support functions across an entire multinational enterprise.”
GBS has aimed to deliver;
- Operational Efficiency: Lowering costs and removing redundant work by pooling resources across regions.
- Process Standardization: Creating uniform, repeatable workflows that make the wider business easier to run and scale.
- Digital Transformation: Encouraging better use of technology, simplifying and driving faster adoption of automation, data analytics, and AI.
- Strategic Agility: Freeing up other business units to focus on core business goals instead of routine back-office tasks.
- End-to-End Integration: Operating as proactive business partners to influence company performance across it’s core end-to-end processes and value streams.
Deborah Kops observed the GBS’ emerging “Gordian Knot” recently;
“Most GBS problems are no longer functional; they are systemic. Technology is disconnected from process, process disconnected from accountability, accountability disconnected from incentives, incentives disconnected from outcomes. The dashboard may be very pretty, but the system still doesn’t work.”
Whilst we talk about “end-to-end”, enterprise value, integrated delivery and breaking down silos, we risk becoming just such a silo, and part of the problem.
We know that GBS leaders, when surveyed by SSON Research & Analytics, state that the greatest kudos they can earn from customers and executive stakeholders is in “Creating Business Value”. The number one response from 57% of leaders.
But when asked to define “Value”, 83% of leaders responded with “GBS cost optimisation”.
At one level, the efficiency of GBS as a unit is an important focus.
But is that “Purpose” or reason to exist?
If GBS is able to deliver services into the end-to-end processes (enterprise value streams) that it supports, 5-7% cheaper each year, does that make GBS a critical enabler for the business?
We know the risks when GBS is no longer regarded as that critical enabler.
Do we need to be clearer about “Value Creation”?
It is most commonly interpreted as driving internal cost efficiencies.
I would argue, in the words of a pioneering GBS leader, that the “Why?” of GBS, it’s existential purpose, is to ENABLE the long term growth (“growing the outputs faster than the inputs”) of the enterprise in the medium to long term, AND DELIVER;
- Enterprise (not just GBS) P&L Impact in the near and long term
- Enterprise Working Capital improvement in the near and long term
If GBS is to be a critical element in creating a high performing, competitive, resilient and growing enterprise, there is a new focus and mindset required.
Our emphasis needs to be “Outside In” (to quote Michael van der Ploeg of Amway).
We need to focus on the enterprise P&L and Balance Sheet.
If we pay as much attention to the enterprise value streams (end-to-end processes) as we do on GBS operating efficiency and service levels, GBS will shine brightly . . .
We can focus “Outside-In” in our stakeholder engagement and continually challenge ourselves on what we can do to create value in a way that is complementary to, and collaborative with, the activities of the rest of the enterprise;
Enterprise value is about both impact AND timescale.
The key is to find early, non-contentious wins in your key value streams, for example;
- Revenue (from customer identification to mutual value creation)
- How can we help identify, diagnose, capture and rectify revenue leakage?
- How can we help turbocharge the enterprise sales channels?
- Expense (from business demand to value creation)
- How can we help identify, diagnose, capture and rectify spend leakage?
- How can we help drive spend optimisation?
- Working Capital
- Cash
- How can we help identify, diagnose, capture and rectify cash leakage?
- How can we help turbocharge DSO & DPO?
- Assets
- How can we help turbocharge “Sweating the Assets”?
- How can we help optimise cash conversion?
- Liabilities
- How can we help identify, diagnose, capture and rectify liability leakage for P&L impact?
- How can we help optimise cash, balanced with obligations?
- Cash
- Operating Efficiencies
- There is still value in optimising the operations and services of GBS, the workflows and activities, to enable improved efficiency and effectiveness in the end-to-end process cycles (value streams), but we need to be precise where and when the genuine P&L impact is, and not “fudge it” 😉
- N.B Beware of the “Doorman fallacy” in pursuing these improvements . . . .
These are 6 examples of genuine value creation opportunity themes, and we should treat them as a portfolio.
Internal GBS operating efficiency is important, but it is just one out of SIX parallel target areas. .
The next step is to quantify, prioritise and execute with an abundance of “XQ” . . .
Thanks for reading . . .